Oil is key to Falklands’ future

UK military assets in the Falklands region

By Antonio Sampaio, Research Assistant, Survival and the Armed Conflict Database

It has been a busy year for oil and gas exploration around the Falklands Islands, and also a crucial moment for the islanders’ economy. Speaking at the IISS in London, Jan Cheek, member of the Legislative Assembly and Executive Council of the Falkland Islands, explained how the islands’ government is counting on oil revenues to develop and diversify the economy of this remote archipelago. Though the exploratory drilling that had taken place in 2012 had disappointed investors, she described herself as ‘cautiously optimistic about the future’, amid a diplomatic offensive by Argentina to exert its claim over the islands.

In an attempt to attract oil companies, the islands’ government has imposed a tax rate of 33% on their operations, one of the lowest in the world. Argentina, for instance, charges a 35% rate on corporate income tax alone, according to Ernst & Young’s 2011 Global Oil and Gas Tax Guide. Cheek explained that this was intended as an incentive to oil companies to consider operating in such a remote region. The further exploration of the still-unconfirmed oil reserves, estimated to hold more than 8 billion barrels, was eagerly awaited by the islanders. ‘Our economy was very narrow and fragile’, commented Cheek. ‘This (oil and gas exploration) is seen as a way of diversifying that, as well as opening new opportunities for businesses and individuals’. Among other plans being considered for the islands’ economy were the creation of a sovereign wealth fund to benefit future generations and further contributions towards the running costs of the UK military outpost there.

Exploratory drilling taking place in the waters around the islands would finally clarify the potential oil revenue to be extracted from the fields to the north, south and east of the Falklands. The discoveries made so far in 2012, by companies Falkland Oil & Gas and Borders & South, had disappointed investors. But more drilling was set to take place and Cheek emphasised the agreements made by oil companies, such as the $1 billion investment pledged in July by Premier Oil to develop the Sea Lion field in conjunction with Rockhopper.

The most pressing concern for the Port Stanley government seemed to be Argentina’s efforts to deny Falklands-flagged vessels access to regional ports and to gather regional support for its sovereignty claims. According to Cheek, the islands enjoyed a good level of cooperation with some South American countries ‘despite the fact that they are paying lip service to regional shows of solidarity to Argentina’. She was referring to declarations of support to Argentina’s claim made during Latin American regional summits, such as those of Unasur (Union of South American Nations), Alba (Bolivarian Alliance for the Peoples of Our America) and the newly formed Community of Latin American and Caribbean States.

Measures adopted by Argentina had taken their toll on oil companies. The costs for the companies had been ‘greater than needed’ because they were seeking to avoid contact with Argentina. She added that moves such as the one made by Buenos Aires in February to deny permission to two cruise liners en route from Port Stanley to dock in Ushuaia might also have a negative impact on the Argentine economy – locals would have missed out on the lucrative tourist trade. Cheek estimated that ‘one or two’ South American countries would be willing to benefit from any possible oil bonanza by selling equipment and services to the islands.

Listen to the discussion on the IISS website


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